Tax-subsidized underpricing: The market for Build America Bonds
Build America Bonds (BABs) were issued by municipalities for 20 months as a part of the 2009 fiscal package. Unlike traditional tax-exempt municipals, BABs are taxable to the holder, but the Treasury rebates 35% of the coupon to the issuer. The stated purpose was to provide municipalities access to a more liquid market including foreign, tax-exempt, and tax-deferred investors. We find BABs do not exhibit greater liquidity than traditional municipals. BABs are more underpriced initially, particularly for interdealer trades. BABs also show a substitution from underwriter fees toward more underpricing, suggesting that the underpricing is a strategic response to the tax subsidy.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Richard C. Green, 2007. "Presidential Address: Issuers, Underwriter Syndicates, and Aftermarket Transparency," Journal of Finance, American Finance Association, vol. 62(4), pages 1529-1550, 08.
- Green, Richard C. & Hollifield, Burton & Schurhoff, Norman, 2007.
"Dealer intermediation and price behavior in the aftermarket for new bond issues,"
Journal of Financial Economics,
Elsevier, vol. 86(3), pages 643-682, December.
- Richard Green & Burton Hollifield & Norman Schurhoff, . "Dealer Intermediation and Price Behavior in the Aftermarket for New Bond Issues," GSIA Working Papers 2005-E56, Carnegie Mellon University, Tepper School of Business.
- Andrew Ang & Vineer Bhansali & Yuhang Xing, 2010. "Build America Bonds," NBER Working Papers 16008, National Bureau of Economic Research, Inc.
- Hsuan-Chi Chen & Jay R. Ritter, 2000. "The Seven Percent Solution," Journal of Finance, American Finance Association, vol. 55(3), pages 1105-1131, 06.
- Paul Schultz, 2001. "Corporate Bond Trading Costs: A Peek Behind the Curtain," Journal of Finance, American Finance Association, vol. 56(2), pages 677-698, 04.
- Green, Richard C, 1993. "A Simple Model of the Taxable and Tax-Exempt Yield Curves," Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 233-64.
When requesting a correction, please mention this item's handle: RePEc:eee:moneco:v:60:y:2013:i:5:p:593-608. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.